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Global Entrepreneurship MonitorSubmitted by:

Madhur Goel(13-MBA-09)

Prashant Malhotra(24-MBA-09)Sahil Kandhari(28-MBA-09)Ankush Gupta(41-MBA-09)

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Global Entrepreneurship Monitor:

Conceived by Michael hay in 1997 of LondonBusiness School and Bill Bygrave of Babsoncollege Of LBS.Ten national teams conducted the first GEMGlobal study in 1999 with Paul Reynolds as theprincipal investigator.

The Global Entrepreneurship ResearchAssociation (GERA) was formed in 2004 toserve as the oversight body for GEM

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GERA:

GERA s mission is to contribute to global economicdevelopment through entrepreneurship. To achievethis, GERA seeks to increase worldwide knowledgeabout entrepreneurship by conducting anddisseminating world-class research that:

1. Uncovers and measures factors impacting thelevel of entrepreneurial activity among economies,2. Identifies policies that may enhance entrepreneurial

activity, and3. Increases the influence of education in supporting

successful entrepreneurship.

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GEM:2010 Report

The 2010 survey shows that, in the economiesanalyzed, some 110 million people between18 and 64 years old were actively engaged instarting a business.GEM takes a comprehensive snapshot of entrepreneurs around the world, measuring

the attitudes of a population and the activitiesand characteristics of individuals participatingin various phases of entrepreneurship

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Each GEM national team oversees an annualsurvey of at least 2,000 adults. In addition,they consult with national experts on factorsthat can explain the nature and level of entrepreneurship in their economies.GEM groups the participating economies into

three levels: factor-driven, efficiency-driven,and innovation- driven. These are based onthe World Economic Forum s (WEF)

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Classification Of GEM countries:

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Premises of GEM:

First, An economy s prosperity is highly dependent on adynamic entrepreneurship sector.Second, An economy s entrepreneurial capacity

requires individuals with the ability and motivation tostart businesses, and requires positive societalperceptions about entrepreneurshipFinally, high-growth entrepreneurship is a keycontributor to new employment in an economy, andnational competitiveness depends on innovative andcross-border entrepreneurial ventures

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GEM Measures:

The main guiding purpose of GEM is tomeasure individual involvement in venturecreation. This differentiates GEM from otherdata sets, most of which record firm-leveldata. A second aim of GEM s research is topromote entrepreneurship as a processcomprising different phases, from intending tostart, to just starting, to running new orestablished enterprises and evendiscontinuing these.

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The Entrepreneurship Process and GEM Operational Definitions

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Economic Development Level andEntrepreneurship :

Following a typology used by the World

Economic Forum, GEM classifies the 59 GEMparticipants as factor-driven, efficiency-driven or innovation-driven economies.

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Characteristics of economic groups and key development focus.

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As an economy develops, productivity increases and, consequently, sodoes per capita income. This is often accompanied by the migration of labour across different economic sectors.

With further development comes the growth of productive sectors.This increases employment capacity but leads to gradual declines in the

level of necessity-driven entrepreneurship.At the same time, improvements in wealth and infrastructurestimulate opportunity-based businesses, shifting the nature of entrepreneurship activity. These ventures are more likely associated withgreater aspirations for growth, innovation and internationalization. Theyrely, however, on the economic and financial institutions created duringthe developing phases.

To the extent these institutions are able to accommodate and supportopportunity-seeking entrepreneurship activity, innovative entrepreneurialfirms may emerge as significant drivers of economic growth and wealthcreation.

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GEM Model:

GEM model shows the the relationship between the social,cultural and political context and three sets of frameworkconditions.The model shows the key imperative in factor driven

economies lies in building basic requirements such asprimary education, healthcare, infrastructure and so forth.Later-stage factors like entrepreneurial finance andgovernment entrepreneurship programs are unlikely tohave substantial impact if, for instance, entrepreneurs don t

have good roads to transport goods or a sufficientlyeducated labour force from which they can recruitemployees. Entrepreneurs with high aspirations fare betterin countries with a stable economic and political climateand well-developed institutions.

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GEM Model:

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Structure of the report:

This report reveals results of the measures of entrepreneurial attitudes, activity and aspirations fromthe GEM 2010 Adult Population Survey (APS).With regard to entrepreneurship activity, we analyzeTotal Early-Stage Entrepreneurship Activity (TEA), whichcombines nascent and new business measures. TEA isthen discussed in terms of its relationship todevelopment level, expressed as GDP per capita,adjusted for purchasing power parity (PPP). We thendescribe the necessity and opportunity-drivencomponents of TEA. Additional characteristics includethe proportion of entrepreneurs operating in variousbusiness sectors, as well as age and gender factors.

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The discussion then turns to established business andbusiness discontinuance. Finally, we describe theaspirations of entrepreneurs: growth projections fortheir businesses, the level of innovativeness from aproduct, market, and competitive standpoint and theextent their customers come from outside theireconomy.The final sections include an overview of results fromthe National Expert Survey (NES) and an analysis of entrepreneurship and the global economy in 2010. Weclose with a summary of key conclusions andimplications.

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Global Perspective onEntrepreneurship in 2010

Attitudes:GEM measures several indicators of attitudes: the extent

to which people think there are good opportunities forstarting a business and their capabilities for doing so.

Also measured is fear of failure or its inverse: the level of risk individuals might be willing to assume to start abusiness.Perceptions about entrepreneurship are reflected in

questions about the status of entrepreneurs, their media

image and whether it makes an attractive career choice.Finally, GEM assesses intent to start a business in the

individuals it surveys. The results are shown in the table inthe next slide:

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Entrepreneurial Attitudes and Perceptions in the GEM Countries in 2010 byPhase of Economic Development

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Important aspects of GEM andEntrepreneurship:

1.Perceived Opportunities and Capabilities

2. Fear of failure

3.Perceptions about entrepreneurship4. Entrepreneurial Intentions

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Activity

1. Across the sample of 59 economies, GEM estimate

that some 110 million people between 18 64 years

old were actively engaged in starting a business .

2 . Another 140 million were running new businesses they

started less than 3 years earlier .

3 . Taken together, some 25 0 million were involved in early-stage entrepreneurial activity .

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T otal Early-Stage Entrepreneurship Activity ( T EA)

GEM defines Total Early-Stage Entrepreneurship Activity (TEA) as the prevalence rate of individualsin the working-age population who are actively involved in business start-ups, either in the phasepreceding the birth of the firm (nascent entrepreneurs), or the phase spanning 3 years after thebirth of the firm (ownermanagers of new firms) .

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The factor-driven economies show the highest TEA rates on average,followed by the efficiency driven economies. The lowest average rates arefound in the innovation-driven groupF actor-Driven Economies ---Sub-Saharan African countries tended towardthe top of the factor-driven economies on entrepreneurship rates. In fact,none of the countries in this geographic region revealed a decline in ratesover the previous year, and Angola showed an increase.Efficiency-Driven Economies ---Latin American/Caribbean economies tend tooccupy the highest positions in terms of entrepreneurship rates in theefficiency-driven groupI nnovation-Driven Economies ---The innovation-driven economies containthe United States and three economies from the Asia-Pacific region, but aremostly populated by Western European economies. This latter region,as awhole, experienced mostly little or negative changes in TEA from 2009

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Entrepreneurship Relative to Development Levels

Figure 5 plots TEA rates against GDP per capita, adjusted for purchasingpower parity. As this figure shows, TEA rates are highest for the poorestcountries, declining rapidly and then leveling out in the efficiency stage,with low levels continuing into the innovation stage until they turn upwardat increasing levels of wealth.

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N ecessity entrepreneurs are those who have entered self-employmentbecause they have no better options for work; in other words, they startbusinesses to generate income for themselves and their families.O pportunity entrepreneurs , on the other hand,have chosen to start

businesses out of opportunity,even when they have other employmentpossibilitiesNecessity-driven (mainly self-employment) activity tends to be higher as aproportion of TEA in less developed economies. Agricultural and extractivesectors, as well as consumer-based local businesses, dominate theseregions. There is more demand for jobs here than employers can provide.

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Figure 6: Necessity-Based Early-Stage EntrepreneurialActivity and Per Capita GDP 2010

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The distribution of early-stage entrepreneurship activity in four main industrysectors, with regard to both economic development phase and geographic region

Figure 8 confirms that extraction businesses (farming, forestry, fishing and mining)are more dominant in factor-driven economies. Business services are morecommon in the innovation-driven economies. On the other hand, no groupdominates the transforming business sector (manufacturing and construction),which exhibits equal prevalence across all three economic levels. Both factor-driven and efficiency-driven economies are strongly weighted toward theconsumer-oriented sector. These businesses tend to have relatively low resourceneeds and are often local in nature

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The MENA/South Asian and Sub-Saharan African countries in the sample areprimarily in the factordriven stage of development. So it is no surprise that

these economies both have high levels of early-stage entrepreneurs in extractivebusinesses, as F igure 9 illustrates. These geographic regions have high levels of natural resources, which enable the extracting sector to thrive. The two differ,however, in that the MENA group dominates the transforming sector, while Sub-Saharan Africa is the most prevalent geographic region in the consumer-orientedsector. The Eastern European, Latin American and Asian economies span two orthree economic groups.

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Age DistributionFigure 10 and Figure 11 show the distribution of early-stage entrepreneurs

by age for the three economic groups and the six geographic regions

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G ender Differences

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Entrepreneurship Framework Conditions An Assessment of

Institutional Quality by National Experts

GEM worked out factors aimed at stimulating entrepreneurship activity. These nineEntrepreneurship Framework Conditions (EFCs) are illustrated and described inFigure 20.

While these can be addressed at any stage of development, it must be emphasizedthat they function best with an underlying foundation of basic requirements andefficiency enhancers. For example, government entrepreneurship programs will notbe effective if inadequate health care and primary education weigh heavily on thepopulace. Innovation-driven economies that have built relatively sophisticated basicrequirements and efficiency enhancers, however, can direct their attention towardenabling these EFCs.

GEM has developed harmonized, single or multiple- tem measures of these EFCs ina survey instrument called the National Expert Survey (NES) xx. Each year, national

teams personally interview and administer the questionnaire to at least 36 nationalexperts . The analysis of their responses is divided into 12 sections . Altogether, theseresults summarize the national perceptions of experts across the EFCs.

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GEM has developed harmonized, single or multiple item measures of these EFCs ina survey instrument called the National Expert Survey (NES) . Each year, nationalteams personally interview and administer the questionnaire to at least 36 nationalexperts . The analysis of their responses is divided into 12 sections . Altogether, theseresults summarize the national perceptions of experts across the EFCs.

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Table 4 provides a general overview of the results on each factor for the 53economies participating in the NES in 2010, organized into the three economicdevelopment groups. This table identifies the top three items with the lowest andhighest scores within each economy. Table 4 shows that many economies share bothpositive and negative elements. For example, 50 economies evaluate physicalinfrastructure positively, including every efficiency-driven and innovation-driveneconomy. Another EFC with many positive evaluations is the commercial and legalinfrastructure; exceptions are exhibited in three Asian economies (China, Taiwan andthe Republic of Korea), which evaluate this factor negatively.

In 46 economies, education and training in primary and secondary school is one of the three worst performing EFCs. A second EFC that has among the lowest scores isnational policy with regard to regulation of new and growing firms; Finland is the only

economy where experts evaluate this EFC positively.

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Entrepreneurship and Global Economy in 2010

Although the global economic downturn delivered its most severe blows in 2008 and2009, a number of countries have suffered a vivid aftershock in 2010. The EuropeanUnion and IMF structured bailouts to rescue Greece and Ireland from bankruptcy,while potentially similar scenarios were looming for some other European countries.In this chapter, we use nine years of GEM data to examine patterns inentrepreneurship around major shifts in the economy. In addition, we reveal results of specific questions that were included in the adult population survey in 2009 and 2010;those entrepreneurs who where polled gave their impressions about starting andoperating their businesses in the current environment.

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4 .1 The Impact of Recessions on Entrepreneurship:Evidence from GEM Data

In this section, we highlight the evolution of entrepreneurial attitudes, activity andaspirations in several countries that have been involved in GEM throughout the20022010 period, a period reflecting a full business cycle. The 2009 GEM GlobalReport highlighted the United States and Argentina as special cases of countries hitby severe recession (Argentina in 2000 and the United States in 2008 2009). In thisreport we show the development of some of the main GEM indicators over time for Ireland, a country that has witnessed particularly severe financial problems in 2010.

Analysis of Entrepreneurship in Ireland: 2002-2010 Figure 22 and Figure 23 show the evolution of entrepreneurial attitudes and activity in

the Irish working-age population from 2002 to 2010 xxv. Consistent with the findingsfor Argentina and the United States in the 2009 GEM report , the Irish populationappears to have acted, from around 2006, as if it anticipated trouble ahead.

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4 .2 Analysis of GEM Economies: 20022010

The next analysis focuses on all the economies that consistently participated in GEM over the 20022010 period, based on the following four main indicators of attitudes and activity:

1. Perceived opportunities to start businesses by the working age population.2. The percentage of owner-managers in new firms in the working age population.3. The percentage of early-stage entrepreneurs that have started out of necessity.4. The percentage of early-stage entrepreneurs expecting to have at least 5 employees.

The 20022010 period is divided into three time frames: (1) 20022004, after the dot.combubble burst, (2) 20052007, a time generally characterized by expansion; and (3) 20082010, during the global slowdown. The selection of economies is based on the availabilityof an adequate sample of entrepreneurs in each period. This is necessary in order tointerpret the differences over time with sufficient statistical precision .

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4 .3 Entrepreneurs Impressions of the Impact of the Recessionon Entrepreneurship Activity

O pportunities for Starting and Growing a Business Compared to O ne Year AgoIn the GEM 2009 and 2010 surveys, two questions were added to assess how early-stage entrepreneurs evaluated the conditions for starting a business in comparison tothe previous year. Figure 28 shows results for those countries in which informationwas available for both years. In 2009, an average of 60% of the entrepreneurs found

it more difficult to start a business. This percentage dropped to 50% in 2010 .

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The Recession and the Impact onPerceived Business Opportunities

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The 2010 adult population surveys asked entrepreneurs for their views on the effectof the global economic slowdown on business opportunities for their start-up or existing businesses. Figure 30 summarizes the results by economic group and typeof entrepreneur. It is clear that a majority of entrepreneurs in all phases of economicdevelopment see fewer opportunities for their business. Still, a quarter of nascententrepreneurs in innovation-driven countries see more opportunities for their business, at a higher frequency than the other two groups.

Figure 30 shows that nascent entrepreneurs and owner-managers of new firmstended to be more optimistic than established entrepreneurs, particularly ininnovation-driven countries. It should be pointed out that these questions are relative,and in countries that have been relatively unaffected by the global slowdown,entrepreneurs may see little difference from one year to the next.

By contrast, in innovation-driven countries, where much has changed, a significantminority of entrepreneurs see opportunity where others see danger. These individualstended to be younger and better educated, and generally had higher aspiration levelsin terms of job expectation and innovation .

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Conclusions and Implications

GEM offers a wealth of measures that canprovide greater understanding about thenature and level of entrepreneurship

worldwide.It is important to recognize, however, thateach economy represents a unique context.Therefore, it is nearly impossible to makespecific policy prescriptions at the global level.The following general recommendations aredesigned to help in the framing of country-

specific policies.

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1. It s Not Just About More Entrepreneurs

The analysis of the three economic stages showsthat lower development levels typically have ahigh number of individuals involved in startingand developing new businesses.They are less likely to grow innovative businesses,reach for high growth and seek internationalmarkets.Entrepreneurship does not impact an economysimply through more individuals startingbusinesses.It is important to consider quality measures suchas those relating to the motivations and

ambitions of entrepreneurs.

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2. Facilitate Necessity, EncourageOpportunity

Entrepreneurship can provide a source of income when an economy cannot yet supplyenough jobs or other alternatives for

generating wages or salaries, providingpositive social value.As economies develop, a drop in necessityentrepreneurship may signal positive gains indevelopment.Societies also need opportunity entrepreneursto ensure new ideas come into being through

the energy of enterprising individuals.

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Where incentives for being an employeesubstantially exceed those associated withbecoming an entrepreneur, policy makers mayconsider either reducing the advantagesemployees receive relative to entrepreneurs,or providing greater benefits for

entrepreneurs, depending on the specificcircumstances in their economies.

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3. Ensure Both EntrepreneurialDynamism and Stability

Dynamism happens through the birth of newfirms.Some of these births displace old businesses thathave outlived their useful lives.As such, both entrances and exits are importantto a dynamic entrepreneurial society.Stability is disrupted, however, when thoseindividuals that can otherwise bring promisingideas to life are thwarted by conditions in theirenvironments social expectations, lack of a legalinfrastructure, government policies, economicinstability and so forth.

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4. Learn from Your Economic Peers andYour Geographic Neighbors

Entrepreneurship is unique in every economy.Yet the study of entrepreneurship relative toeconomic level enables one to understand what

might be unique at a particular phase of development, or to learn from others in the sameeconomic situation.In addition, the patterns exhibited in geographic

regions reveal an opportunity for regional studiesof entrepreneurship, to understand howsimilarities among neighbors influenceentrepreneurship and perhaps to outline

approaches for bringing about improvements.

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5. Promote Entrepreneurship inMany Forms

Entrepreneurship in a society can be portrayed asa portfolio of different business phases and types.Economies need many different types of

entrepreneurs, including those that may beunderrepresented: younger and older individuals,women and poorer or disadvantaged groups.Some economies, for instance, showed fewer

women, or a low number of younger or olderentrepreneurs. When an economy neglects alarge demographic in its entrepreneurship ranks,it misses an opportunity to fully benefit from its

entrepreneurial potential.

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6. Promote an EntrepreneurialMindset Across the Population

An economy s entrepreneurial capacityrequires individuals with the ability andmotivations to start businesses.These entrepreneurs will need to rely on awide variety of personal and professionalsupport mechanisms: families, advisors,

government officials, creditors and investors,suppliers and customers and so forth.In addition, societal-level impressions can

impact entrepreneurs.

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Efforts to promote entrepreneurship maytherefore benefit from improving theperspective of the wider population.This highlights the role of media in promotingpositive images of entrepreneurs.It also underscores the value of training andeducation in preparing individuals who canpursue entrepreneurship when needed orwhen opportunity strikes.